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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-13082
KENNETH COLE PRODUCTIONS, INC.
(Exact name of registrant as specified in its charter)
New York 13-3131650
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
603 West 50th Street, New York, NY 10019
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 265-1500
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes (X) No ( )
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Class November 4, 2004
Class A Common Stock ($.01 par value) 12,127,333
Class B Common Stock ($.01 par value) 8,055,497
Kenneth Cole Productions, Inc.
Index to 10-Q
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2004
and December 31, 2003..................................................... 3
Condensed Consolidated Statements of Income for the three and nine-month
periods ended September 30, 2004 and 2003................................. 5
Condensed Consolidated Statement of Changes in Shareholders' Equity for the
nine month period ended September 30, 2004................................ 6
Condensed Consolidated Statements of Cash Flows for the nine-month periods
ended September 30, 2004 and 2003......................................... 7
Notes to Condensed Consolidated Financial Statements...................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................17
Item 3. Quantitative and Qualitative Disclosures about Market Risk...........24
Item 4. Controls and Procedures..............................................24
Part II. OTHER INFORMATION
Item 1.Legal Proceedings.....................................................25
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds...........25
Item 3.Defaults Upon Senior Securities.......................................25
Item 4.Submission of Matters to a Vote of Security Holders...................25
Item 5.Other Information.....................................................25
Item 6.Exhibits..............................................................25
Signatures...................................................................26
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Kenneth Cole Productions, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
2004 2003
Assets
Current assets:
Cash $101,650,000 $111,102,000
Due from factors 50,208,000 31,487,000
Accounts receivable, net 13,378,000 11,254,000
Inventories, net 58,426,000 44,851,000
Prepaid expenses and other current assets 1,666,000 1,343,000
Deferred taxes 2,478,000 2,063,000
------------ ------------
Total current assets 227,806,000 202,100,000
Property and equipment, net 37,531,000 36,755,000
Other assets:
Deposits and deferred taxes 16,584,000 16,603,000
Deferred compensation plan assets 20,424,000 18,383,000
------------ ------------
Total other assets 37,008,000 34,986,000
------------ ------------
Total assets $302,345,000 $273,841,000
============ ============
See accompanying notes to condensed consolidated financial statements.
Kenneth Cole Productions, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (continued)
(Unaudited)
September 30, December 31,
2004 2003
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 32,821,000 $ 33,847,000
Accrued expenses and other current liabilities 10,650,000 11,153,000
Income taxes payable 3,206,000 2,939,000
------------ ------------
Total current liabilities 46,677,000 47,939,000
Deferred compensation 20,424,000 18,383,000
Other long-term liabilities 12,525,000 11,185,000
Commitments and contingencies
Shareholders' equity:
Series A Convertible Preferred Stock par
value $1.00, per share, 1,000,000 shares
authorized, none outstanding
Class A Common Stock, par value $.01, per
share, 20,000,000 shares authorized, and
14,990,481 and 14,534,791 issued in 2004
and 2003, respectively 150,000 145,000
Class B Common Stock, par value $.01, per
share, 9,000,000 shares authorized,
8,078,497 and 8,168,497 outstanding as of
September 30, 2004 and 2003, respectively 81,000 82,000
Additional paid-in capital 77,618,000 69,992,000
Accumulated other comprehensive income 554,000 751,000
Retained earnings 210,537,000 191,585,000
------------ ------------
288,940,000 262,555,000
Class A Common Stock in treasury, at cost,
2,888,400 shares in 2004 and 2003 (66,221,000) (66,221,000)
------------ ------------
Total Shareholders' Equity 222,719,000 196,334,000
------------ ------------
Total Liabilities and Shareholders' Equity $302,345,000 $273,841,000
============ ============
See accompanying notes to condensed consolidated financial statements.
Kenneth Cole Productions, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Net sales $132,929,000 $121,179,000 $350,000,000 $311,392,000
Royalty revenue 11,784,000 10,887,000 30,147,000 27,726,000
------------ ------------ ------------ ------------
Net revenues 144,713,000 132,066,000 380,147,000 339,118,000
Cost of goods sold 81,089,000 74,442,000 212,681,000 189,921,000
------------ ------------ ------------ ------------
Gross profit 63,624,000 57,624,000 167,466,000 149,197,000
Selling, general and
administrative
expenses 44,344,000 41,855,000 125,518,000 114,208,000
------------ ------------ ------------ ------------
Operating income 19,280,000 15,769,000 41,948,000 34,989,000
Interest and other
income, net 330,000 158,000 921,000 650,000
------------ ------------ ------------ ------------
Income before provision
for income taxes 19,610,000 15,927,000 42,869,000 35,639,000
Provision for
income taxes 7,452,000 5,893,000 16,291,000 13,186,000
------------ ------------ ------------ ------------
Net income $ 12,158,000 $ 10,034,000 $ 26,578,000 $ 22,453,000
============ ============ ============ ============
Earnings per share:
Basic $ .60 $ .51 $ 1.33 $ 1.15
Diluted $ .59 $ .49 $ 1.29 $ 1.10
Dividends declared
per share $ .14 $ .075 $ .38 $ .075
Shares used to compute
earnings per share:
Basic 20,170,000 19,627,000 20,024,000 19,558,000
Diluted 20,693,000 20,475,000 20,677,000 20,389,000
See accompanying notes to condensed consolidated financial statements.
Kenneth Cole Productions, Inc. and Subsidiaries
Condensed Consolidated Statement of Changes in Shareholders' Equity
(Unaudited)
Class A Class B
Common Stock Common Stock
Number Number
of shares Amount of shares Amount
Shareholders' equity
January 1, 2004 14,534,791 $ 145,000 8,168,497 $ 82,000
Net income
Translation adjustment
foreign currency, net of
taxes of $126,000
change in forward
contracts, net of
taxes of $(246,000)
Comprehensive income
Exercise of stock options,
and related tax benefit
of $2,781,000 358,734 4,000
Issuance of Class A
Common Stock for ESPP 6,956
Dividends paid on Common
Stock Class A and B
Conversion of Class B
shares to Class A shares
of Common Stock 90,000 1,000 (90,000) (1,000)
-----------------------------------------------
Shareholders' Equity
September 30, 2004 14,990,481 $ 150,000 8,078,497 $ 81,000
===============================================
Accumulated
Additional Other
Paid-in Comprehensive Retained
Capital Income Earnings
Shareholders' equity
January 1, 2004 $ 69,992,000 $ 751,000 $191,585,000
Net income 26,578,000
Translation adjustment
foreign currency, net of
taxes of $126,000 205,000
change in forward
contracts, net of
taxes of $(246,000) (402,000)
Comprehensive income
Exercise of stock options,
and related tax benefit
of $2,781,000 7,452,000
Issuance of Class A
Common Stock for ESPP 174,000
Dividends paid on Common
Stock Class A and B (7,626,000)
Conversion of Class B
shares to Class A shares
of Common Stock
--------------------------------------------
Shareholders' Equity
September 30, 2004 $ 77,618,000 $ 554,000 $210,537,000
============================================
Treasury Stock
Number of
Shares Amount Total
Shareholders' equity
January 1, 2004 (2,888,400) $(66,221,000) $196,334,000
Net income 26,578,000
Translation adjustment
foreign currency, net of
taxes of $126,000 205,000
change in forward
contracts, net of
taxes of $(246,000) (402,000)
------------
Comprehensive income 26,381,000
Exercise of stock options,
and related tax benefit
of $2,781,000 7,456,000
Issuance of Class A
Common Stock for ESPP 174,000
Dividends paid on Common
Stock Class A and B (7,626,000)
Conversion of Class B
shares to Class A shares
of Common Stock
-------------------------------------------
Shareholders' Equity
September 30, 2004 (2,888,400) $(66,221,000) $222,719,000
===========================================
See accompanying notes to condensed consolidated financial statements
Kenneth Cole Productions, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
2004 2003
Cash flows from operating activities
Net income $ 26,578,000 $ 22,453,000
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 5,766,000 5,795,000
Unrealized loss (gain) on deferred compensation 1,421,000 (2,115,000)
Realized gain on sale of property and equipment (14,000)
Provision for bad debts 79,000 214,000
Tax benefit from exercise of stock options 2,781,000 1,567,000
Benefit for deferred taxes (561,000)
Changes in assets and liabilities:
Increase in due from factors (18,721,000) (15,658,000)
Increase in accounts receivable (2,203,000) (5,333,000)
Increase in inventories (13,977,000) (10,922,000)
Increase in prepaid expenses & other current assets (323,000) (713,000)
Increase in other assets (3,297,000) (3,289,000)
(Decrease) increase in accounts payable (1,026,000) 6,084,000
Increase (decrease) in income taxes payable 267,000 (3,728,000)
Decrease in accrued expenses and other
current liabilities (297,000) (3,893,000)
Increase in other long-term liabilities 3,381,000 6,478,000
------------ ------------
Net cash used in operating activities (146,000) (3,060,000)
Cash flows from investing activities
Acquisition of property and equipment (6,596,000) (6,693,000)
Proceeds from sale of property and equipment 68,000
------------ ------------
Net cash used in investing activities (6,528,000) (6,693,000)
Cash flows from financing activities
Proceeds from exercise of stock options 4,675,000 2,340,000
Proceeds from issuance of common stock from
Employee Stock Purchase Plan 174,000 151,000
Dividends paid to shareholders (7,626,000) (1,476,000)
Purchase of treasury stock (4,526,000)
Principal payments on capital lease obligations (171,000)
------------ ------------
Net cash used in financing activities (2,777,000) (3,682,000)
Effect of exchange rate changes on cash (1,000) (12,000)
------------ ------------
Net decrease in cash (9,452,000) (13,447,000)
Cash, beginning of period 111,102,000 91,549,000
------------ ------------
Cash, end of period $101,650,000 $ 78,102,000
============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 12,000 $ 31,000
Income taxes, net $ 13,805,000 $ 14,989,000
See accompanying notes to condensed consolidated financial statements.
Kenneth Cole Productions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared by Kenneth Cole
Productions, Inc. (the "Company") in accordance with accounting
principles generally accepted in the United States for interim
financial information. Accordingly, they do not include all of
the information and footnotes required by accounting principles
generally accepted in the United States for complete financial
statements. Certain items contained in these financial
statements are based on estimates. In the opinion of the
Company's management, the accompanying unaudited condensed
consolidated financial statements reflect all significant
adjustments, consisting of only normal and recurring
adjustments, necessary for a fair presentation of the financial
position and results of operations and cash flows for the
periods presented. All significant intercompany transactions
have been eliminated.
Operating results for the nine months ended September 30,
2004 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2004. These unaudited
condensed consolidated financial statements should be read in
conjunction with the financial statements and footnotes
included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2003.
The consolidated balance sheet at December 31, 2003, as
presented, was derived from the audited financial statements
included in the Company's Annual Report on Form 10-K for the
period ended December 31, 2003.
2. Stock-Based Compensation
The Company measures compensation expense for its
stock-based compensation plans using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") and
related Interpretations. The Company has adopted disclosure
only provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123").
Pro forma disclosures, as required by Statement of
Financial Accounting Standard No. 148, "Accounting for Stock-
Based Compensation - Transition and Disclosure," are computed
as if the Company recorded compensation expense based on the
fair value for stock-based awards or grants. The following pro
forma information includes the effects of the options discussed
above.
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Net Income, as reported $12,158,000 $10,034,000 $26,578,000 $22,453,000
Deduct: Stock-based
Employee compensation
expense determined
under fair value
method, net of
related tax effects 989,000 678,000 2,397,000 2,119,000
----------- ----------- ----------- -----------
Pro forma net income $11,169,000 $ 9,356,000 $24,181,000 $20,334,000
Earnings per share:
Basic - as reported $ .60 $ .51 $ 1.33 $ 1.15
Basic - pro forma $ .55 $ .48 $ 1.21 $ 1.04
Diluted - as reported $ .59 $ .49 $ 1.29 $ 1.10
Diluted - pro forma $ .54 $ .46 $ 1.17 $ 1.00
3. Earnings Per Share
The Company calculates earnings per share in accordance with
SFAS No. 128, "Earnings Per Share." Basic earnings per share
is calculated by dividing net income by weighted average common
shares outstanding. Diluted earnings per share is calculated
similary, except that it includes the dilutive effect of the
assumed exercise of securities under the Company's stock
incentive plans.
The following is an analysis of the differences between
basic and diluted earnings per common share:
Three Months Ended Nine Months Ended
September September September September
30, 2004 30, 2003 30, 2004 30, 2003
Weighted average common
shares outstanding 20,170,000 19,627,000 20,024,000 19,558,000
Effect of dilutive securities:
Stock options 523,000 848,000 653,000 831,000
Weighted average common
shares outstanding and ---------- ---------- ---------- ----------
common share equivalents 20,693,000 20,475,000 20,677,000 20,389,000
========== ========== ========== ==========
Stock options outstanding as of September 30, 2004 and 2003,
aggregating 797,000 and 431,000, respectively, have not been
included in the diluted per share calculations since their
effect would be antidilutive.
4. Comprehensive Income
Comprehensive income is comprised of net income, the effect
of foreign currency translation and changes in unrealized gains
and losses on forward exchange contracts used to hedge
merchandise commitments. Comprehensive income for the three-
month periods ended September 30, 2004 and 2003 amounted to
$12,431,000 and $10,405,000, respectively. Comprehensive income
amounted to $26,381,000 and $22,355,000 for the nine-month
periods ended September 30, 2004 and 2003, respectively.
5. Derivative Instruments and Hedging Activities
In the normal course of business, the Company routinely
enters into forward contracts in anticipation of future
purchases of inventory denominated in Euros. These forward
contracts are used to hedge against the Company's exposure to
changes in foreign exchange rates to protect the purchase price
of merchandise under such commitments and are not held for the
purpose of trading or speculation therefore, the Company has
classified these contracts as cash flow hedges in accordance
with SFAS No. 133 "Accounting for Derivative Instruments and
Hedge Activities." The Company had outstanding forward
contracts of $9,000,000 at September 30, 2004 with maturity
dates through December 2004.
All terms and conditions of the Company's forward contracts
are included in the measurement of the related hedge
effectiveness. The critical terms of the forward contracts are
the same as the underlying forecasted transactions. As a result,
changes in the fair value of the contracts are highly effective
in offsetting changes in the expected cash flows from the
forecasted transactions. No gains or losses related to
ineffectiveness of cash flow hedges were recognized in earnings
during the nine months ended September 30, 2004. At September
30, 2004 the Company's notional $9,000,000 in forward exchange
contracts resulted in an unrealized gain of approximately
$204,000, net of taxes, which was included as an addition to
other comprehensive income in the Company's Condensed
Consolidated Statement of Changes in Shareholders' Equity and an
increase to inventory, the underlying exposure on the balance
sheet. The Company expects to reclassify all of the unrealized
gain from other comprehensive income into earnings within the
next three month period due to the actual executions of foreign
exchange contracts to purchase merchandise and the ultimate sale
of that merchandise.
6. Segment Information
The Company has three reportable segments: Wholesale, Consumer
Direct and Licensing. The Company's reportable segments are
business units that offer different products and services or
similar products through different channels of distribution. The
Wholesale segment designs, sources, and markets a broad range of
quality footwear and handbags for wholesale distribution. The
Consumer Direct segment markets abroad selection of the Company's
branded products, including licensee products for sale directly
to the consumer through its own channels of distribution, which
include full price retail stores, outlet stores, catalogs and e-
commerce (at website addresses www.kennethcole.com and
www.reactiononline.com). The Licensing segment earns royalties
on licensee sales to third parties of the Company's branded
products and royalties on the purchase and sale to foreign
retailers or to consumers in foreign countries. The Company
maintains control over quality and image and allows licensees to
sell primarily to channels of distribution the same as, similar
to or otherwise consistent with those of the Company's Wholesale
segment. The Company evaluates performance and allocates
resources based on profit or loss before income taxes from each
segment. The Wholesale segment is evaluated on income from
operations before income taxes. The Consumer Direct segment is
evaluated on profit or loss from operations before unallocated
corporate overhead and income taxes. The Licensing segment is
evaluated on royalties earned and pretax segment profit.
Intersegment sales between the Wholesale and Consumer Direct
segment include a markup, which is eliminated in consolidation.
Financial information of the Company's reportable segments is
as follows (in thousands):
Three Months Ended
September 30, 2004
Consumer
Wholesale Direct Licensing Totals
Revenues from external 88,546 44,383 11,784 144,713
customers
Intersegment revenues (7,979) (7,979)
Segment income (1) 12,533 1,661 9,820 24,014
Segment assets 244,498 53,760 6,902 305,160
Three Months Ended
September 30, 2003
Consumer
Wholesale Direct Licensing Totals
Revenues from external 79,055 42,124 10,887 132,066
customers
Intersegment revenues (9,028) (9,028)
Segment income (1) 10,594 1,542 8,120 20,256
Segment assets 212,801 52,025 2,898 267,724
Nine Months Ended
September 30, 2004
Consumer
Wholesale Direct Licensing Totals
Revenues from external 219,803 130,197 30,147 380,147
customers
Intersegment revenues (23,869) (23,869)
Segment income (1)(2) 25,001 5,481 25,127 55,609
Nine Months Ended
September 30, 2003
Consumer
Wholesale Direct Licensing Totals
Revenues from external 197,215 114,177 27,726 339,118
customers
Intersegment revenues (22,870) (22,870)
Segment income (1) 26,501 (1,617) 22,464 47,348
(1) Before elimination of intersegment profit, unallocated corporate overhead
and income taxes.
(2) Included in the Wholesale segment during the nine months ended September
30, 2004 were $1.1 million in severance and other costs to close the Company's
east coast distribution facility and transfer the operations to a third-party
service provider.
The reconciliation of the Company's reportable segment revenues, profit and
loss, and assets are as follows (in thousands):
Three Months Ended Nine Months Ended
September September September September
30, 2004 30, 2003 30, 2004 30, 2003
Revenues
Revenues for external customers $144,713 $132,066 $380,147 $339,118
Intersegment revenues 7,979 9,028 23,869 22,870
Elimination of
intersegment revenues (7,979) (9,028) (23,869) (22,870)
-------- -------- -------- --------
Total consolidated revenues $144,713 $132,066 $380,147 $339,118
======== ======== ======== ========
Income
Total profit for
reportable segments $ 24,014 $ 20,256 $ 55,609 $ 47,348
Elimination of intersegment
profit and unallocated
corporate overhead (4,404) (4,329) (12,740) (11,709)
-------- -------- -------- --------
Total income before income taxes $ 19,610 $ 15,927 $ 42,869 $ 35,639
======== ======== ======== ========
Assets
Total assets for reportable
segments $305,160 $267,724
Elimination of intersegment
inventory profit (2,815) (2,139)
-------- --------
Total consolidated assets $302,345 $265,585
======== ========
Revenues from international customers were 2.6% and 2.0% of the Company's
consolidated revenues for the three and nine months ended September 30, 2004,
respectively, and were under 2.0% for the three and nine months ended
September 30, 2003.
7. New Accounting Pronouncements
On October 13, 2004, the Financial Accounting Standards Board
reached a consensus on the effective date for SFAS No. 123R ("SFAS
123R"), "Share-Based Payment". SFAS 123R requires the Company to
measure compensation cost for all share-based payments at fair value
for interim and annual periods beginning after June 15, 2005. The
Company is currently evaluating the requirements and impact of SFAS
123R on the Company's consolidated financial statements.
8. Common Stock Repurchase
The Board of Directors of the Company has authorized
management to repurchase, from time to time, up to an aggregate
4,250,000 shares of the Company's Class A Common Stock. During the
nine months ended September 30, 2004, no shares were repurchased in
the open market leaving the available shares authorized for
repurchase at 1,361,600. The repurchased shares have been recorded
as Treasury Stock.
9. Licensing Agreement
On May 1, 2003, the Company entered into an exclusive license
agreement with Candies, Inc. and its trademark holding company, IP
Holdings, LLC, ("Candies") to use the Bongo trademark in connection
with worldwide manufacture, sale and distribution of women's, men's
and children's footwear. The Chief Executive Officer and Chairman of
Candies is the brother of the Company's Chief Executive Officer and
Chairman. The initial term of the agreement is through December 31,
2007, with options to renew through December 31, 2016 based upon the
Company reaching certain sales thresholds. During these periods, the
Company is obligated to pay Candies a percentage of net sales based
upon the terms of the agreement. The Company recorded approximately
$395,000 and $961,000 in royalty and advertising expense to Candies
for the three and nine months ended September 30, 2004, respectively.
The Company recorded approximately $386,000 and $436,000 in royalty
and advertising expense to Candies for the three and nine months
ended September 30, 2003, respectively.
10. New York Office Building Purchase
The Company entered into an agreement on April 21, 2004 to
purchase the office building that it is currently leasing for its New
York City worldwide headquarters for approximately $24 million. The
closing date must occur within twenty months, the specific timing to
be determined by the parties, based on the ability of the current
landlord to satisfy certain terms and conditions of the agreement.
11. Severance
In conjunction with the Company's decision to close its east
coast distribution center and transfer the operation to a third-party
service provider, the Company entered into a shutdown agreement
during April 2004, with a local affiliate of the International
Leather Goods, Plastics, Handbags and Novelty Workers Union, Local I
Division of Local 342-50 United Food and Commercial Workers Union,
which provided for, among other things, severance payments for
employees covered by the expiring collective bargaining agreement.
In connection with this transition, the Company incurred
approximately $1.1 million in aggregate costs, including severance
from the aforementioned agreement, the write-off of unamortized
leasehold improvements and moving costs during the second quarter
2004. These costs were expensed as incurred in accordance with SFAS
No. 146 "Accounting for Costs Associated with Exit or Disposal
Activity" and recorded in selling, general and administrative
expenses in the condensed consolidated Statement of Income.
12. Reclassifications
Certain amounts in the Company's previous financial statements
have been reclassified to conform to the 2004 presentation.
13. Legal Proceedings
On September 20, 2004, a class action lawsuit was filed against
the Company in the Superior Court of California for the County of Los
Angeles. The action alleges that the individual plaintiffs and other
purported class members worked hours for which they were entitled to
receive, but did not receive, overtime compensation under California
law. The Company has retained counsel, is preparing a formal
response to the complaint, and plans to defend the action vigorously.
In addition, the Company is, from time to time, a party to other
litigation that arises in the normal course of its business
operations. The Company is not presently a party to any such
litigation that it believes would have a material adverse effect on
its business operations.
14. Subsequent Event
On October 21, 2004, the Board of Directors declared a quarterly
cash dividend of $.14 per share payable on December 16, 2004, which
will be paid to shareholders of record at the close of business on
November 24, 2004.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements Disclosure
The statements contained in this report which are not historical
facts, including, without limitation, statements that relate to
future performance and/or statements regarding the Company's
anticipated results or level of business for 2004 or any other future
period, may be deemed to constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements are based on current expectations only, and
actual future results might differ materially from those projected in
such statements due to a number of risks and uncertainties,
including, but not limited to, demand and competition for the
Company's products, the ability to enter into new licensee
agreements, to maintain and renew existing licensing agreements and
to open new stores, dependence on certain large customers and changes
in the Company's relationships with vendors and other resources. The
forward-looking statements contained herein are also subject to other
risks and uncertainties that are described in the Company's reports
and registration statements filed with the Securities and Exchange
Commission. The Company undertakes no obligation to publicly update
or revise any forward-looking statement, whether as a result of new
information, future results or otherwise.
Update on Critical Accounting Policies
The Company's consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the
United States, which require the Company to make estimates in the
application of its accounting policies based on the best assumptions,
judgments and opinions of management. For a description of a summary
of the Company's significant accounting policies, see the Company's
consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2003.
Overview
Kenneth Cole Productions, Inc., designs, sources and markets a
broad range of fashion footwear and handbags, and, through license
agreements, designs and markets apparel and accessories under its
Kenneth Cole New York, Kenneth Cole Reaction, and Unlisted brand
names. During 2003, the Company added the Bongo trademark brand for
footwear through a license agreement. In addition, the Company
designs and sources footwear and handbags for its customers under its
customers own trademarks. The Company's products are targeted to
appeal to fashion conscious consumers, reflecting a casual urban
perspective and a lifestyle uniquely associated with Kenneth Cole.
The Company markets its products to more than 7,500 department
and specialty store locations, as well as through its Consumer Direct
business, which includes an expanding base of retail and outlet
stores, consumer catalogs and interactive websites, including online
e-commerce.
The popularity of the Kenneth Cole New York and Kenneth Cole
Reaction brand names among consumers has enabled the Company to
expand its product offerings and channels of distribution through
licensing agreements and allows it to offer through these agreements
a lifestyle collection of men's product categories such as tailored
clothing, dress shirts, dress pants, sportswear, neckwear, briefcases,
portfolios, jewelry, fragrance, belts, leather and fabric outerwear,
sunglasses, optical eyewear, watches, luggage, hosiery and small
leather goods. Women's product categories currently being sold
pursuant to license agreements include sportswear, small leather
goods, belts, scarves and wraps, hosiery, leather and fabric
outerwear, sunglasses, optical eyewear, watches, jewelry, fragrance,
swimwear, and luggage. In addition, the Company also licenses
children's apparel.
The Company recorded revenues of $144.7 million for the three
months ended September 30, 2004, a 9.6% increase over the comparable
period in the prior year and earnings per fully diluted share grew
20.4% to $0.59 from $0.49 over the comparable quarter in 2003. The
Company recorded revenues of $380.1 million and earnings per share of
$1.29 for the nine months ended September 30, 2004, a increase in
revenues of 12.1% and an increase of earnings per share of 17.3% over
the comparable period in the prior year. The Company's balance sheet
reflected $101.7 million in cash and no debt as of September 30,
2004. The Company continues to focus on designing and delivering
high quality, fashionable products, creating efficient and compelling
retail environments, and continuing close partnerships with its
licensees to ensure brand quality and distribution integrity.
Additionally, the Company continues to concentrate on cost reduction
strategies and inventory control.
Results of Operations
The following table sets forth the Company's condensed
consolidated statements of income in thousands of dollars and as a
percentage of net revenues for the three and nine months ended
September 30, 2004 and September 30, 2003.
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Net sales $132,929 91.9% $121,179 91.8% $350,000 92.1% $311,392 91.8%
Royalty revenue 11,784 8.1 10,887 8.2 30,147 7.9 27,726 8.2
-------- ------ -------- ------ -------- ------ -------- ------
Net revenues 144,713 100.0 132,066 100.0 380,147 100.0 339,118 100.0
Gross profit(1) 63,624 44.0 57,624 43.6 167,466 44.1 149,197 44.0
Selling, general
& administrative
expenses 44,344 30.6 41,855 31.7 125,518 33.0 114,208 33.7
-------- ------ -------- ------ -------- ------ -------- ------
Operating income 19,280 13.4 15,769 11.9 41,948 11.1 34,989 10.3
Interest
income, net 330 0.2 158 0.2 921 0.2 650 0.2
-------- ------ -------- ------ -------- ------ -------- ------
Income before
income taxes 19,610 13.6 15,927 12.1 42,869 11.3 35,639 10.5
Income tax
expense 7,452 5.2 5,893 4.5 16,291 4.3 13,186 3.9
-------- ------ -------- ------ -------- ------ -------- ------
Net income 12,158 8.4 10,034 7.6 26,578 7.0 22,453 6.6
======== ====== ======== ====== ======== ====== ======== ======
(1) Gross Profit may not be comparable to other entities, since some
entities include the costs related to their distribution network in
cost of goods sold and others entities, similar to the Company,
exclude these costs from gross profit, including them instead in a
line item such as selling, general and administrative expenses.
Three Months Ended September 30, 2004 Compared to Three Months Ended
September 30, 2003
REVENUES: Consolidated net revenues increased $12.6 million, or
9.6%, to $144.7 million for the three months ended September 30, 2004
from $132.1 million for the three months ended September 30, 2003.
The increase in revenues spanned all of the Company's segments:
Wholesale, Consumer Direct and Licensing as further described below
in the sections entitled "Net Sales" and "Licensing Revenue."
NET SALES: Wholesale net sales (excluding sales to the Company's
Consumer Direct business segment) increased $9.5 million, or 12.0% to
$88.5 million, for the three months ended September 30, 2004 from
$79.1 million for the three months ended September 30, 2003. This
increase is primarily attributable to increased sales of the
Company's Kenneth Cole New York and Kenneth Cole Reaction branded
men's and women's footwear, as well as the handbag businesses of
approximately 29.5%, offset by a decrease in the Company's volume
and private label businesses.
Net sales in the Company's Consumer Direct segment increased $2.3
million, or 5.4%, to $44.4 million for the three months ended
September 30, 2004 from $42.1 million for the three months ended
September 30, 2003. The increase in net sales is due primarily to an
increase in sales from new stores opened in 2004 and that portion of
2004 sales for stores not open for all of 2003, of $2.4 million,
offset by a decrease in comparable store sales of $0.4 million or
1.1%. The remaining increase was primarily due to an increase in the
Company's Internet operations. Comparative store sales were
negatively affected by the hurricanes in Florida during the three
months ended September 30, 2004.
LICENSING REVENUE: Royalty revenue increased 8.2% to $11.8 million
for the three months ended September 30, 2004 from $10.9 million for
the three months ended September 30, 2003. The growth in licensing
revenues was driven by incremental sales from existing licensee
product categories, most significantly fragrance and from the
Company's new men's casual pants licensee.
GROSS PROFIT: Consolidated gross profit, as a percentage of net
revenues, increased to 44.0% for the three months ended September 30,
2004 from 43.6% for the three months ended September 30, 2003.
Margins increased on a consolidated basis, as a percentage of net
revenues, as a result of an increase in margin in both the Wholesale
and Consumer Direct segments. The increase in gross profit from its
Consumer Direct segment resulted from direct merchandise initiatives
at its outlet stores and a reduction in promotional activities at
point of sale. The increase in Wholesale gross margin is a result of
changes in sourcing, resulting in higher initial markups. Changes in
the mix of the Company's revenues from its Wholesale, Consumer Direct
and Licensing segments also affected consolidated gross margins. The
Wholesale segment, which operates at a lower gross profit level than
the Consumer Direct segment, as a percentage of net revenue increased
to 61.2% for the three months ended September 30, 2004 from 59.9% for
the three months ended September 30, 2003, while the Consumer Direct
segment as a percentage of net revenue decreased to 30.7% for the
three months ended September 30, 2004 from 31.9% for the three months
ended September 30, 2003. Furthermore, Licensing segment revenues,
which carry a nominal cost of goods sold, decreased as a percentage
of net revenue to 8.1% for the three months ended September 30, 2004
from 8.2% for the three months ended September 30, 2003.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses, including shipping and warehousing,
increased 5.9% to $44.3 million (or 30.6% of net revenues) for the
three months ended September 30, 2004 from $41.9 million (or 31.7% of
net revenues) for the three months ended September 30, 2003.
Expenses, as a percentage of net revenues, decreased as a result of
the Company's recent move to third party variable warehousing, and
leverage on its base of fixed expenses.
INTEREST AND OTHER INCOME: Interest and other income increased to
$330,000 for the three months ended September 30, 2004 from $158,000
for the three months ended September 30, 2003. The increase is due
to higher average cash balances and an improved rate of return on the
Company's investments.
INCOME TAXES: The Company's effective tax rate has increased to
38.0% for the three months ended September 30, 2004 from 37.0% for
the three-months ended September 30, 2003 as a result of changes in
tax laws from state and local jurisdictions to which the Company's
earnings are subject.
NET INCOME: As a result of the foregoing, net income increased 21.2%
for the three months ended September 30, 2004 to $12.2 million (8.4%
of net revenues) from $10.0 million (7.6% of net revenues) for the
three months ended September 30, 2003.
Nine months Ended September 30, 2004 Compared to Nine Months Ended
September 30, 2003
REVENUES: Consolidated net revenues increased 12.1% to $380.1
million for the nine months ended September 30, 2004 from $339.1
million for the nine months ended September 30, 2003. This increase
is attributable primarily to the factors described below in the
sections entitled "Net Sales" and "Licensing Revenue."
NET SALES: Wholesale net sales (excluding sales to the Company's
Consumer Direct business segment) increased $22.6 million or 11.5%
for the nine months ended September 30, 2004 to $219.8 million from
$197.2 million for the nine months ended September 30, 2003. The
increase is due primarily to increased sales from the Company's
women's footwear and handbags businesses of approximately 17.8%. The
Company sells its products under several trademarks at varying price
ranges to multiple demographics through several distribution
channels. The Company believes this mix and the strengthening of sell-
thrus at retail from customer acceptance has improved the Company's
Wholesale net sales.
Net sales in the Company's Consumer Direct segment increased $16.0
million, or 14.0%, to $130.2 million for the nine months ended
September 30, 2004 compared to $114.2 million for the nine months
ended September 30, 2003. The increase in net sales is due to an
increase in comparable store sales of 7.0%, or $7.6 million, as well
as $7.3 million in sales from new stores opened in 2004 and that
portion of 2004 sales for stores not open for all of 2003. The
remaining sales of $1.1 million were primarily from sales of the
Company's Corporate Gift Program and Internet operations. The
Company believes the increase in net sales in the Consumer Direct
segment is due in part to the economic strengthening generally seen
throughout the retail and apparel industry, direct merchandising
initiatives at its outlets.
LICENSING REVENUE: Royalty revenue increased 8.7% to $30.1 million
for the nine months ended September 30, 2004 from $27.7 million for
the nine months ended September 30, 2003. This increase is
attributable primarily to the incremental minimum royalties from the
Company's existing licensees, most significantly women's apparel and
fragrance, as well as new revenues from the Company's men's casual
pants licensee.
GROSS PROFIT: Consolidated gross profit as a percentage of net
revenues increased to 44.1% for the nine months ended September 30,
2004 from 44.0% for the nine months ended September 30, 2003. Higher
margins in the Consumer Direct segment and an increase in the
percentage of revenue contributed by the Consumer Direct segment were
offset by decreased margins within the Wholesale segment. Consumer
Direct segment margins increased from merchandising initiatives at
its outlet stores, new assortments which focus on wear-now products
that limit vulnerability of the mix of products without compromising
fashion and excitement and a reduction of point of sale promotions.
The Wholesale segment as a percentage of net revenues decreased to
57.8% for the nine months ended September 30, 2004 from 58.2% for the
nine months ended September 30, 2003, while the Consumer Direct
segment which operates at a higher gross profit percentage increased
as a percentage of net revenues to 34.2% for the nine months ended
September 30, 2004 from 33.7% for the nine months ended September 30,
2003. Early in the year, the U.S. dollar compared to the Euro, in
year over year comparison, resulted in reduced initial mark-ups in
the Wholesale segment. During the third quarter 2004, the Company's
sourcing initiatives included shifting production, enabled the
Company to begin recognizing higher initial mark-ups.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses, including shipping and warehousing,
increased 9.9% to $125.5 million (or 33.0% of net revenues) for the
nine months ended September 30, 2004 from the $114.2 million (or
33.7% of net revenues) for the nine months ended September 30, 2003.
The decrease as a percentage of revenues is attributable to the
Company's leverage on increased sales, particularly in the Consumer
Direct segment, and to its ongoing cost control strategies.
INTEREST AND OTHER INCOME: Interest and other income increased to
$921,000 for the nine months ended September 30, 2004 from
approximately $650,000 for the nine months ended September 30, 2003.
The increase is the result of higher average cash balances and higher
rates of return on investments.
INCOME TAXES: The Company's effective tax rate increased to 38.0%
for the nine-month period ended September 30, 2004 from 37.0% in the
nine month period ended September 30, 2003 as a result of changes in
tax laws from state and local jurisdictions to which the Company's
earnings are subject.
NET INCOME: As a result of the foregoing, net income increased 18.4%
for the nine months ended September 30, 2004 to $26.6 million (7.0%
of net revenues) from $22.5 million (6.6% of net revenues) for the
nine months ended September 30, 2003.
Liquidity and Capital Resources
The Company uses cash from operations as the primary source of
financing for its expansion and seasonal requirements. Cash
requirements vary from time to time as a result of the timing of the
receipt of merchandise from suppliers, the delivery by the Company of
merchandise to its customers, and the level of accounts receivable
and due from factors balances. At September 30, 2004 and December
31, 2003 working capital was $181.1 million and $154.2 million,
respectively.
Cash used in operating activities was $0.1 million for the nine
months ended September 30, 2004, compared to $3.1 million used in
operating activities for the nine months ended September 30, 2003.
The decrease in cash flow used in operations is primarily
attributable to an increase in net income and the timing of payables,
offset by an increase in inventory.
Net cash used in investing activities decreased $0.2 million to
$6.5 million for the nine months ended September 30, 2004 from $6.7
million for the nine months ended September 30, 2003. Investing
activities for the nine months ended September 30, 2004 and 2003 were
primarily for capital expenditures. Capital expenditures for new
retail store openings and expansions were approximately $4.5 million
and $2.5 million for the nine months ended September 30, 2004 and
September 30, 2003, respectively. The remaining expenditures were
used primarily for information technology and office build-out and
renovations.
Net cash used in financing activities was $2.8 million for the
nine months ended September 30, 2004 compared to the $3.7 million
used in financing activities for the nine months ended September 30,
2003. During the nine months ended September 30, 2004, the Company
declared and paid quarterly cash dividends of approximately $7.6
million to common stock shareholders, which were offset by proceeds
from the exercise of stock options of $4.7 million. During the nine
months ended September 30, 2003, the Company used approximately $4.5
million to repurchase shares of Class A Common Stock under its buy-
back program and paid approximately $1.5 million in quarterly cash
dividends to common stock holders, offset by $ 2.3 million in
proceeds from the exercise of stock options.
The Company's material obligations under contractual agreements,
including commitments for future payments under operating lease
agreements and other contractual agreements as of September 30, 2004
are summarized as follows:
Payments Due by Period
1 year or 2-3 4-5 After 5
less years years years Total
Operating leases
and other
contractual
obligations $26,663,000 $76,689,000 $53,468,000 $95,382,000 $252,202,000
----------- ----------- ----------- ----------- ------------
Total contractual
obligations $26,663,000 $76,689,000 $53,468,000 $95,382,000 $252,202,000
=========== =========== =========== =========== ============
The Company utilizes forward contracts to hedge its cost on
future purchases of inventory in Euros. These forward contracts are
used to hedge against the Company's exposure to changes in the Euro
exchange rates to protect the purchase price of merchandise under
such commitments and are not held for the purpose of trading or
speculation. At September 30, 2004, the Company had forward contracts
totaling $9.0 million in notional value with an unrealized gain of
$204,000, net of taxes.
The Company entered into an agreement in April 2004 to purchase
the office building that it currently leases for its New York City
worldwide headquarters for approximately $24 million. The closing
date will occur within twenty months based on the ability of the
current landlord to satisfy certain terms and conditions of the
agreement. This amount has been included in the tabular form of
commitments denoted above.
The Company currently has a line of credit, which allows for
borrowings and letters of credit up to a maximum of $25.0 million to
finance working capital requirements. The Company has no outstanding
advances under this line of credit; however, amounts available under
the line of credit were reduced by $6.9 million in standby letters of
credit and $0.7 million in open letters of credit to $17.4 million at
September 30, 2004.
The Company believes that it will be able to satisfy its cash
requirements for the next year, including requirements for its retail
expansion and renovations, office build-out of its corporate
headquarters, dividend payments and enhancements to its information
systems, primarily with cash flow from operations and current cash
levels.
The foregoing commentary should be considered to fall
within the coverage of the "Safe Harbor Statement" under the Private
Securities Litigation reform Act of 1995 included in this report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company does not believe it has a material exposure to
market risk. The Company is primarily exposed to currency exchange-
rate risks with respect to its inventory transactions denominated in
Euros. Business activities in various currencies expose the Company
to the risk that the eventual net dollar cash flows from transactions
with foreign suppliers denominated in foreign currencies may be
adversely affected by changes in currency rates. The Company manages
these risks by utilizing forward contracts to hedge its cost on
future purchases. The Company does not enter into foreign currency
transactions for speculative purposes. At September 30, 2004, the
Company had forward contracts totaling $9.0 million in notional value
with an unrealized gain of $204,000, net of taxes. The Company's
earnings may also be affected by changes in short-term interest rates
as a result of borrowings under its line of credit facility. At the
Company's borrowing levels, a two percent increase in interest rates
affecting the Company's credit facility would not have a material
effect on the Company's year-to-date and projected 2004.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
The Company's chief executive officer and chief financial
officer, after evaluating the effectiveness of the Company's
"disclosure controls and procedures" (as defined in Rules 13a-15(e)
or 15d-15(e) of the Securities Exchange Act of 1934, as amended) as
of the end of the period covered by this quarterly report, have
concluded that the Company's disclosure controls and procedures were
effective and designed to ensure that material information relating
to the Company and the Company's consolidated subsidiaries would be
made known to them by others within those entities to allow timely
decisions regarding required disclosures.
Changes in internal controls
During the Company's most recent fiscal quarter, no changes
occurred in the Company's internal control over financial reporting
that have materially affected, or are reasonably likely to materially
affect, the Company's control over financial reporting.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
On September 20, 2004, a class action lawsuit was filed
against the Company in the Superior Court of California for the
County of Los Angeles. The action alleges that the individual
plaintiffs and other purported class members worked hours for which
they were entitled to receive, but did not receive, overtime
compensation under California law. The Company has retained counsel,
is preparing a formal response to the complaint, and plans to defend
the action vigorously.
In addition, the Company is, from time to time, a party to other
litigation that arises in the normal course of its business
operations. The Company is not presently a party to any such
litigation that it believes would have a material adverse effect on
its business operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders. None
Item 5. Other Information. None
Item 6. Exhibits.
31.1 Certification pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002-
Chief Executive Officer
31.2 Certification pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002-
Chief Financial Officer
32.1 Certification pursuant to 10 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002- Chief Executive Officer
32.2 Certification pursuant to 10 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002- Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Kenneth Cole Productions, Inc.
Registrant
November 8, 2004 /s/ DAVID P. EDELMAN
David P. Edelman
Chief Financial Officer
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Kenneth D. Cole, certify that:
1. I have reviewed this quarterly report on Form 10-Q being filed by
Kenneth Cole Productions, Inc.;
2. Based on my knowledge, the report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by the report;
3. Based on my knowledge, the financial statements, and other
financial information included in the report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
the report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
i. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this quarterly report is being prepared;
ii. Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
iii. Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
i. All significant deficiencies and material weaknesses
in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
ii. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
By: /s/ KENNETH D. COLE
--------------------------
Kenneth D. Cole
Chief Executive Officer
Date: November 8, 2004
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, David P. Edelman, certify that:
1. I have reviewed this quarterly report on Form 10-Q being filed by
Kenneth Cole Productions, Inc.;
2. Based on my knowledge, the report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by the report;
3. Based on my knowledge, the financial statements, and other
financial information included in the report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
the report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
i. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this quarterly report is being prepared;
ii. Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
iii. Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
i. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
ii. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
By: /s/ DAVID P. EDELMAN
--------------------------
David P. Edelman
Chief Financial Officer
Date: November 8, 2004
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Kenneth Cole Productions,
Inc. (the "Company") on Form 10-Q for the period ending September 30,
2004 as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), I, Kenneth D. Cole, Chairman and Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C.
1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) The information contained in the Report fairly
presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ KENNETH D. COLE
Kenneth D. Cole
Chairman and Chief Executive Officer
Kenneth Cole Productions, Inc.
November 8, 2004
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Kenneth Cole Productions,
Inc. (the "Company") on Form 10-Q for the period ending September 30,
2004 as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), I, David P. Edelman, Chief Financial Officer
of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted
pursuant to 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) The information contained in the Report fairly
presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ DAVID P. EDELMAN
David P. Edelman
Chief Financial Officer
Kenneth Cole Productions, Inc.
November 8, 2004